Daily Insight Greece deal back on?
Group Economics Macro & Financial Markets Research Nick Kounis,& Aline Schuiling
+31 20 343 5616 ,
1 July 2015
Greece’s request for an extension of the programme was rejected by the Eurogroup… …but it will consider a request for a new 2-year EUR 29.1bn programme tomorrow Request for a new programme could allow ECB to continue to allow ELA provision Meanwhile , eurozone inflation edges down, but set to rise in coming months
Alexis sends a letter The Greek government appeared to try and reach a last-ditch
Greece: financing needs in coming years Numbers behind EUR 29.1 bn third bail-out request
deal with its creditors on Tuesday, hours before its IMF payment and current programme were due to expire (midnight CET). Prime Minister Alexis Tsipras sent a letter to the European authorities making three requests. First, for an extension of the existing programme. Second, for debt relief in the form of a haircut. Third, for a new 2-year ESM programme worth EUR 29.1 bn, which would cover estimated financing needs in 2015-2017 (see chart). Athens also apparently sent a new programme of measures, which would be part of the third bailout. Eurogroup rejects extension, considers new programme
Source: Greece Ministry of Finance
The Eurogroup had a conference call on Tuesday evening in
Still campaigning for NO?
order to consider the Greek request. The Eurogroup rejected
More cynically, Mr Tsipras’ request might be trying to sway
the request to extend the programme and for debt relief. The
voters to vote NO on Sunday, by trying to show his
request for an ESM programme would be considered by the
government is doing all it can to reach a deal, while the
institutions. President Dijsselbloem warned it would be ‘quite a
eurozone authorities reject his efforts. So it is difficult to know
procedure’. The Eurogroup will have a call again on
how serious this new attempt is for talks. Our base case is that
Wednesday morning at 11:30 to discuss this.
the Greek public will vote in favour of the creditor proposal (from last week) in the referendum, paving the way for an
The referendum issue
eventual deal.
German Chancellor Merkel seemed to suggest that there would be little progress before the referendum on Sunday. Her
Eurozone inflation edges lower
Vice Chancellor seemed to suggest that the Greek government
Away from the Greek crisis, HICP inflation in the eurozone
should drop the referendum in order to allow talks to progress
declined to 0.2% yoy in June, down from 0.3% in May. The
quickly. Meanwhile, Greece’s Deputy PM Dragasakis
core inflation rate declined to 0.8% from 0.9%. Not all
suggested that the referendum could be scrapped, though the
components of the HICP have been published yet, but the
speaker of parliament said this would be unconstitutional.
volatile price of package holidays in Germany seems to have had a downward impact. Indeed, services price inflation in the
Risk ECB could restrict ELA
eurozone fell from 1.3% in May to 1.0% in June. Meanwhile,
It is unclear whether the Greek government’s proposals are
both food and energy price inflation were roughly unchanged in
now in line with those of creditors, which could eventually pave
June. We expect headline inflation to accelerate to well above
the way for a new deal. Greece’s request could be designed to
1% by year end as the depressing impact of energy prices
prevent the ECB from restricting ELA at its meeting tomorrow,
fades. Core inflation, in contrast, will remain close to current
which would be a further severe blow to the liquidity situation in
levels as it continues to be dampened by past weakness in the
the banking sector. The Greek government’s request could
economy. Next year, core inflation should start to pick up
indeed allow the ECB to maintain ELA, especially if the
significantly , however, as the effects of the past depreciation
Eurogroup gives a tentative positive verdict tomorrow.
of the euro and the recovery of the economy feed through.